Prime Minister of Japan Shinzo Abe (left) and European Union (EU) Council president Herman Van Rompuy give a press conference on May 7, 2014, at the EU Headquarters in Brussels following the 22nd summit meeting between EU and Japan. The European Union and Japan agreed on Wednesday to try to conclude talks on an ambitious free-trade deal next year that would encompass about a third of the global economy, despite European carmakers' scepticism about Tokyo's commitment. -- PHOTO: AFP

BRUSSELS (REUTERS) - The European Union and Japan agreed on Wednesday to try to conclude talks on an ambitious free-trade deal next year that would encompass about a third of the global economy, despite European carmakers' scepticism about Tokyo's commitment.

An EU-Japan trade pact, potentially one of the world's biggest, would be part of an emerging patchwork of sophisticated accords between the world's richest countries as they search for growth following the worst financial crisis in a generation and the failure of global free-trade talks.

"We confirmed the importance of an early conclusion and 2015 is the target date for a basic agreement," Japan's Prime Minister Shinzo Abe told a joint news conference with European Council President Herman van Rompuy and European Commission President Jose Manuel Barroso after a summit.

Negotiations on a trade deal began in April 2013 and the European Commission has estimated an agreement could add up to one per cent of gross domestic product (GDP) to both the Japanese and the EU economies while deepening economic ties.

However, European carmakers such as Fiat and PSA Peugeot Citroen complain that unfair requirements hamper their access to the Japanese market. Doubtful about Tokyo's willingness to remove barriers to European exports, the Commission and member states, led by France, had told EU trade negotiators to call off the talks after a year if Japan did not show sufficient openness.

Commission President Barroso, whose officials negotiate trade deals on behalf of member states, said on Wednesday he saw "no objections" to the continuation of negotiations. EU countries are expected to formally endorse that view on May 23.

According to an EU document seen by Reuters, Japan has met most of Brussels' conditions for continuing talks but the EU is still demanding that Tokyo end preferential tax treatment for domestically produced small-engine cars.

European cars are unable to benefit from Japanese tax breaks because they do not fit the criteria on size and power. Europe's smaller cars are excluded from 40 per cent of Japan's passenger car market, according to EU car industry association ACEA.

After their talks, Mr Abe and the EU leaders also urged Russia on Wednesday not to exacerbate Ukraine's crisis. Brussels threatened further sanctions against Moscow in the event of further violence, which it fears could derail a planned presidential election on May 25 in Ukraine.

"We call on Russia to refrain from any steps to further destabilise Ukraine and instead to engage in a diplomatic resolution of the crisis," said Mr van Rompuy, who represents the EU's 28 national governments. "Further steps in destabilising Ukraine will call for additional sanctions," he said.

He spoke before President Vladimir Putin called on pro-Russian separatists in eastern Ukraine to postpone their planned referendum on independence on May 11 and said Moscow had withdrawn troops from its border with Ukraine.

The EU and Japan have followed the United States in imposing travel bans and asset freezes on dozens of individuals, some of them close to Mr Putin, over Moscow's actions in Ukraine, including its annexation of the Crimea peninsula.

Western countries say Russian agents are directing the uprising in eastern Ukraine and that Moscow is stoking trouble with propaganda broadcasts into Ukraine that depict the government in Kiev as "fascists".

But, mindful of their countries' business interests and energy supplies, Brussels and Tokyo have held back on wider trade sanctions. "We call on Russia to follow the diplomatic path," said Mr Abe, whose country is a member of the Group of Seven major economies. Japan plans to send observers to Ukraine's May 25 election.

Mr Van Rompuy said the EU was open to holding more talks with Ukraine, Russia and the United States, possibly in Geneva.

The Straits Times

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